“They will stop working” – Inflation hits construction companies

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Thefts on construction sites are not a new phenomenon. But the recent theft of €2,000 worth of insulation boards from a site in Clonmel, Co Tipperary shows just how valuable basic building materials have become.

Just as Covid had begun to loosen its grip on supply chains, the energy crisis and war in Ukraine added another layer of inflation.

Patrick Atkinson, CEO of construction merchants Chadwicks, told Prime Time that building materials sourced from Russia and Ukraine, or products made using energy-intensive production processes, continue to see their prices rise. to augment.

Raw timber costs 64% more than 12 months ago, according to the Central Bureau of Statistics. Plaster is a third more expensive, while the price of steel and reinforcing metal has increased by 27%.

A spike in the cost of MDI – a key raw material used in plastic pipes and insulation – is also impacting products that hadn’t been hit as hard by the pandemic.

Insulation, as Tipperary thieves recognized, is now a precious commodity. Rolls of attic insulation that used to cost €40 now sell for €60, a 50% increase in just 18 months.

“I was talking to a supplier yesterday who told me that their energy costs had tripled in the last 12 months,” Mr Atkinson said.

Chadwicks has 40 stores across the country and insists its stock levels are very good. The problem, at least for customers, is how much it all costs.

Building materials can represent up to 20% of the cost of a home built by a developer

Entrepreneurs are now taking action to ensure they are not left behind. Some builders refuse to quote a job until they are on site and ready to go. Others buy all the materials for a project in advance – something that would have been unheard of before.

In other words, they hedge against possible inflation, Mr. Atkinson said.

Retailers like Chadwicks don’t necessarily benefit from price increases, the CEO explained.

“We don’t pass on all the increases. In fact, we take a little. We don’t like prices going up continuously. It creates uncertainty,” he said.

Construction materials represent between 15% and 20% of the cost of a house built by a developer.

Cairn Homes said in its latest financial results that building inflation added €15,000 to the cost of its homes last year. A further increase of €10,000 is planned this year.

The company, which doubled its profits in 2021, said efficiencies meant buyers were paying just €2,000 more than the previous year.

For other companies, absorbing costs may be more difficult. One of the country’s largest civil engineering and construction companies, Roadbridge, went into receivership earlier this month. No one thinks it will be the only one.

Contractors are struggling to agree on a price for work that may not start until long after material costs rise, Eamonn McCafferty, owner of earthworks company Site Control, told Prime Time.

The Covid-19 pandemic had already disrupted construction industry supply chains

“We recently priced a project there, and in terms of materials, a supplier told us they could only hold the price for one day. Only one day,” McCafferty said, member of the Irish Plant Contractors Association.

Fuel is about half the cost of running Mr. McCafferty’s machines.

“Last January we were paying 75 cents a litre. Two weeks ago it was up to €1.50,” he said.

“To continue as things stand could be seen as reckless trading. Many businesses aren’t willing to take the risk – so we’d rather park than put our business at risk.”

A wait-and-see approach may make good business sense, but if replicated on a larger scale, it would spell disaster for housing supply.

“I know for a fact that the developers and customers are finishing the current projects, but they have no plans in the near future to continue the next phases. [of housing] until there is some price certainty,” McCafferty said.

This, he noted, could leave the government’s housing targets “in tatters”.

Businesses can simply stop working, MrCafferty warned.

Change is on the way for contractors working on future state projects. New contracts will allow companies to be compensated if material costs increase by more than 15%.

But, it is intended, the State could also be a winner if the price of materials drops.

In any case, these changes will only apply to future agreements, and McCafferty said it could take a year or two before the effects are felt.

Some industry sources believe price inflation is already approaching its peak

“We need help now,” he said.

Public Expenditure Minister Michael McGrath said the Office of Public Procurement was considering whether aid could be provided to construction companies working on existing public projects.

Tom Parlon, the chief executive of the Construction Industry Federation, who met the minister earlier this week, told Prime Time that some businesses were at breaking point.

“If something doesn’t happen now, more businesses will close – or else they will cease to operate.”

In Ardee, Co Louth, there is another indication of an industry under pressure.

Richmond Homes has permission to build approximately 200 homes in the Bridgegate development just outside the city. It launched a 12-unit phase before Christmas, but last week returned deposits to five buyers due to delays in getting a contractor on site.

“Once it became clear that we could not meet a specific delivery date for the homes, we immediately contacted the five affected buyers to explain the situation and return their deposits plus costs,” explained a company spokesperson.

Richmond, which is proceeding as planned with other developments across the country, insisted it was not selling the Bridgegate development to an investment fund or other buyer.

The disappointment of Ardee buyers seems, for now, to be an isolated incident. But the concern in the sector is what will happen if costs continue to rise.

Some industry sources believe price inflation is nearing its peak and the industry will soon find alternative suppliers for materials whose supply chains have been disrupted due to the war.

Mr Atkinson agreed that steel prices are “probably at the top of the market”, having stabilized in recent weeks. But the CEO of Chadwicks warned that across the building materials spectrum there will be further inflation for the rest of the year.

The key to cooling the market, he said, is an end to the war in Ukraine.

“Our suppliers believe that energy prices would start to normalize – and that the high price inflation that we are currently seeing, down to energy costs, would dissipate.”

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